Pharma R&D Outsourcing Is On The Rise

Pharmaceutical companies are increasingly outsourcing research activities to academic and private contract research organizations (CROs) as a strategy to stay competitive and flexible in a world of exponentially growing knowledge, increasingly sophisticated technologies and an unstable economic environment.

According to a recent analytical report by Visiongain, drug discovery outsourcing will continue to grow over the next decade and will rise to a $43.7 billion dollar industry by 2026, as compared to an estimated 19.2 billion in 2016 (or $21.2 billion according to Kalorama Information). This is in line with Vantage’s fresh alliance benchmarking study, revealing that over 80% of bio-pharma respondents report increased alliance activity compared to five years ago. Getting ideas and expertise from external sources is a well-established practice in the pharmaceutical industry with about one-third of all drugs in the pipelines of the top ten pharmaceutical companies initially developed elsewhere, according to a 2014 WSJ article by Jonathan D. Rockoff.

The growing statistics is heavily supported by a wave of recent media reports clearly suggesting a strong focus of biopharmaceutical companies on partnering with academia and CROs.

Indeed, AstraZeneca has been in the process of moving its global headquarters to Cambridge, UK to harness the university’s scientific might. Back in 2013-2014, the company established a number of strategic R&D outsourcing partnerships with academic organizations, including Academic Drug Discovery Consortium (ADDC), Medical Research Council Laboratory of Molecular Biology (MRC LMB), and Cancer Research UK (CRUK) Cambridge Institute.

Meanwhile, AstraZeneca’s global biologics research and development arm MedImmune has already been collaborating with The University of Texas MD Anderson Cancer Center towards developing immunotherapies against cancer.

Pfizer has undertaken a similar strategy in the US, having positioned many of its research and development facilities close to major bioscience hubs, such as San Francisco and La Jolla in California and Cambridge, Massachusetts.

Bristol-Myers Squibb has partnered with Allied Minds, a Boston-based group focused on commercialization of academic research, to scour American universities for innovative drug discovery ideas. Promising research projects will be structured into startup companies within a new enterprise, known as Allied-Bristol Life Sciences.

What stimulates pharmaceutical companies to expand their involvement in outsourcing models of collaboration? The four underlying motives are summarized below.

Cutting costs

Diminishing profits have become a major cornerstone for the pharmaceutical companies over the past decade. A recent report, “Decline In Economic Returns From New Drugs Raises Questions About Sustaining Innovations” reveals a somewhat alarming picture for drug makers, suggesting that the newest medicines are generating a negative rate of return across the industry.

Clearly, drug discovery and development is a costly venture with an estimated $0.8 to $1.7 billion spent by the pharma industry in R&D to bring a new drug to market (according to PhRMA). In many cases, drug candidates fail at the latest stages of drug discovery programs and it adds up to potential risks and overall costs.

Additional tension for innovator companies comes from profit drops associated with the approaching “patent cliff” for a number of highly profitable drugs. Evaluate Pharma forecasts that around $215 billion in sales will be at risk due to patent expirations between 2015 and 2020.

In order to increase the success rate of drug discovery programs and decrease R&D costs, pharmaceutical companies seek to improve and accelerate every stage of early drug discovery process, starting from target identification and validation, and all the way towards a preclinical drug candidate with an excellent ADME/Tox profile. To achieve these goals, drug researchers has turned to new areas in science to develop better in vitro, in vivo, and in silico methods and models. In most cases, it is cheaper and more efficient to outsource those technologies from external organizations, than it is to create in-house infrastructure and hire all the necessary research staff.

Chasing innovations

An increasing lack of innovation in pharma seems to be among the underlying reasons why drug makers tend to outsource research to academia or CROs. According to the insight by Stewart Lyman in his article “The innovation challenge: Assessing biopharma startups” in Xconomy, Big Pharma is losing efficiency at discovering new drugs and “has to get its ideas from somewhere else”.

According to Dr. Sy Pretorius from an international Life Sciences consulting company Parexel, “Academic centers are particularly well-suited for doing the early work around target discovery and target validation and basic science research”.

One recent example of how pharma benefits from outsourcing academic expertise is Sanofi SA having received its first set of antibiotics drug candidates from its collaboration with Harvard University.

In the pursuit of new ideas, some of big pharma companies try outsourcing models in a form of open innovation and resource sharing, as was summarized by Dr. Jackie Hunter in her article in Drug Discovery World.

For example, Lilly organized PD2 portal back in 2009, allowing researchers to have their compounds screened against phenotypic, disease-relevant assays that were already established at Lilly. The portal later grew into a network of 70 small biotechnology companies and 174 academic institutions. Later in 2011, Lilly introduced the TargetD2 program to provide external access to a panel of well-validated target-based assays across five targets of interest. In addition, there is a possibility to provide access to relevant computational methods to let researchers conduct structure-based research on the initial results.

Another example of resource sharing comes from Glaxosmithkline (GSK) having established an R&D group Scinovo.

Takeda provided incubation facilities for academics and biotech companies in its Shonan research center in Japan where external and internal researchers can work together side-by-side.

Accessing specialized knowledge and technologies

Advances in genomics, combinatorial chemistry, high-throughput screening (HTS), and cheminformatics have all contributed to an explosion in the number of new promising biological targets and lead molecules. However, it is rare that biopharmaceutical companies have all the required expertise and infrastructure in-house to fully embrace the new technologies’ potential. Thus, companies more often choose to outsource their research programs to specialized CROs or academic centers focused on a particular area of knowledge and capable of providing a state-of-the-art expertise in certain areas.

A vivid example when R&D outsourcing appears to be a smart approach for accessing a novel technology early in the drug discovery process is a collaboration with companies offering artificial intelligence (AI) and machine learning (ML) capabilities for big data analysis, hypothesis probing, accelerating hit exploration activities and identifying hidden dependencies in data patterns.

A partnership between pharmaceutical giant Pfizer and IBM’s Watson for Drug Discovery to advance cancer research made headlines recently. Scientists at Pfizer will use the IBM’s supercomputer for rapidly analyzing and testing research hypotheses from “massive volumes of disparate data sources”, including more than 30 million sources of laboratory and data reports as well as medical literature.

Another recent example includes a collaboration between pharmaceutical giant Merck and AI-focused computational company Atomwise on the undisclosed project.

Increasing speed and agility

The modern world is characterized by rapidly changing technological paradigms, exponentially growing data, and the increasing role of the interdisciplinary collaboration and expertise. Developing sophisticated in-house infrastructure and substantially expanding the count of staff with specific expertise in advanced areas of research is not only costly but also risky for a pharmaceutical company. Especially it is true at the earliest stages of drug discovery process when the uncertainty is the highest. Maintaining only the most important core functions and competencies, while outsourcing research-intensive programs with yet uncertain results to specialized CROs or academic labs, seems to be a reasonable strategy.